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Three former directors banned from serving as company directors.
A UK parliamentary report has argued that leading bank HBOS was an “accident waiting to happen”. The newly released report by the Parliamentary Commission on Banking Standards blamed the banks leaders, including Andy Hornby, Lord Stevenson and Sir James Crosby, for the failures that led to the bank’s 2008 collapse.
The report detials that on 27 January 2004 the Board of HBOS plc was told by the Group Finance Director, Mike Ellis, that, in the view of the Financial Services Authority (FSA) the Group’s growth had outpaced the ability to control risks. The Group’s strong growth, which was markedly different than the position of the peer group, may have given rise to “an accident waiting to happen”.
Neither the FSA nor HBOS followed through on the implications of this characterisation. The accident happened. HBOS failed, with dramatic consequences for its shareholders and for the taxpayer. In the report the commission investigated why HBOS failed and what that failure says about culture and standards in UK banking.
At its peak in 2007, HBOS had a market capitalisation of over £40 billion, when its tangible book value was £18 billion.Former HBOS shareholders have seen 96 per cent of its peak value disappear, and what remains is the result of support from the UK taxpayer and the acquisition by Lloyds TSB. The taxpayer has injected £8.5 billion directly into HBOS. Lloyds Banking Group (LBG) has provided a further £20.5 billion for HBOS and has itself also received £12 billion from the taxpayer.
The total of £20.5 billion provided by the taxpayer to both groups has therefore all been channelled into HBOS. The market value of the Treasury holding in LBG is still £5 billion below the £20.5 billion invested. There have also been wider effects of the catastrophe, with HBOS weakened in its ability to lend to retail customers and small- and medium-sized enterprises (SMEs) and the banking market less diverse.
Two of the three large domestic bank failures of the banking crisis in the UK have previously been the subject of detailed scrutiny. The retail bank run on Northern Rock and its consequences were subject to near contemporaneous consideration by the Treasury Committee.At the initiative and insistence of the Treasury Committee, the FSA—which had initially published only a 300 word press release to accompany the conclusion of its enforcement process—published a substantial Report into the failure of RBS, which was, also at the instigation of the Treasury Committee, subject to independent review by specialist advisers appointed by that Committee. Subsequently the Treasury Committee produced its own Report following that from the FSA.
The fall of HBOS has so far received less public scrutiny, consideration being largely limited to sections in a Report by the Treasury Committee in 2009.
In July 2011 the Chairman of the FSA wrote to the Chairman of the Treasury Committee describing progress with the Authority’s report on RBS and the “extremely valuable” role of the independent reviewers. In view of the public interest in knowing what happened at HBOS, and probably in anticipation of the foreseeable requirement of the Treasury Committee, he said that it was the FSA’s intention also to produce a further report on the collapse of HBOS once the enforcement process was complete.
In evidence to the Treasury Committee in January 2012 Lord Turner acknowledged that it had been a mistake on the part of the FSA not to have decided earlier to produce a public accountability report on RBS, and repeated his intention of producing a report on HBOS equivalent to that which the FSA had published on RBS.
